Why Health Net Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of commercial managed health-care services company Health Net (NYSE: HNT  ) vaulted higher by as much as 15% after announcing its third-quarter earnings results and resolving a dispute with the state of California.

So what: For the quarter, Health Net reported a 3% rise in revenue to $2.78 billion as its net income fell to just $0.22. Wall Street had been looking for the health-care solutions provider to report $0.36 in profit on revenue of $2.8 billion. Luckily, shareholders were willing to overlook the earnings miss because Health Net resolved its long-standing dispute with the state of California's Health Care Services department regarding cuts to Medicare and Medicaid reimbursement rates. The company pledged to find new ways to work around the cuts and received contract extensions that extend through 2018 to 2022.

Now what: It's great news that Health Net isn't locking horns with the state of California anymore, but that doesn't exactly give it a clean bill of health. Plenty of challenges still remain, given reduced reimbursement rates and higher medical costs within the state. I'd give Health Net a few quarters to prove its own health to investors before you even remotely consider buying into this company.

Craving more input? Start by adding Health Net to your free and personalized Watchlist so you can keep up on the latest news with the company.


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